INTERVIEW: Fluor increasingly optimistic on North American projects

HOUSTON -- Earlier this week, we caught up with Peter
Oosterveer, president of the energy and chemicals
(E&C) segment for Fluor, along with E&C vice president
Matthew McSorley.

The pair spoke in a 30-minute interview at the St. Regis
Houston hotel, where Fluor held its annual November media
day.

Topics discussed included company business as well as
industry topics such as shale gas, crude oil prices and their
downstream and contractor effects.

Highlights of their observations are as follows:

1.) Fluor is becoming much more bullish and comfortable
in North America. The trend began in 2010 and
2011, said Oosterveer, and has continued into 2012.
Were not just listening to what other people have
to say, but judging by the amount of work we have to do right
now, he said. If all goes well, assuming nothing
disastrous happens, were seeing real opportunities."

With most North American projects, Fluor is in the front-end
engineering and design (FEED) phase. Those typically
reach a decision point where clients either say yes or
no, Oosterveer said. Looking at way these things
shape up, its starting to look more and more promising.
Thats different than a year ago.

2.) Outlook improves for completed US ethylene
crackers. About a year ago, Oosterveer said he expected
2 or 3 new ethane-based crackers to actually be
constructed by the end of the decade. Now? That would
probably on the low side, he said. I would not be
surprised if its more like five.

Fluor is presently working on three US cracker projects and
tracking several others, he said. They could still fail,
but thats not our feel.

McSorley believes several of the major projects on the US
Gulf Coast will be approved into the engineering, procurement
and construction (EPC) phase in the next
12 months. Some of them will be approved or at least on
the verge of, he said. The construction capacity could start to
get very strained.

3.) Canada more likely than US to become major LNG
exporter. On the gas side, Canadas British
Columbia province may soon become a hotbed for LNG export
activity to Asia. I think the chances that Canadians are
going to export LNG are bigger than the US, said
Oosterveer. Though one US export permit (Sabine Pass LNG) has
been granted, Oosterveer believes Canada will have the greater
export presence because for them, politically, it is much
more acceptable than the US. For the US, it is much more
important to be used for domestic consumption, he said.

McSorley expects the uncertainty over the numerous proposed
LNG export projects in the US to be sorted out within a year or
so. Economic studies will get done, and well find
out whether itll be British Columbia or Gulf Coast,
McSorley said. The companies like ExxonMobil and Shell,
they need to be able to make their plans and move on.

4.) US Democrats begin to see the light on energy
development. The recent re-election of President Barack
Obama wasnt particularly surprising or critical to Fluor
because the company didnt see an enormous difference in
the policies of Obama and Republican challenger Mitt
Romney.

Obviously Republicans are more bullish on energy, but
dont think its drastic, said McSorley.
Things may take a little bit longer to get permitted or
things of that nature, but I believe the Democrats are seeing
the light that [domestic production] is something that needs to
happen in terms of energy security and jobs. Would things maybe
move faster on Republican side? Yeah. But I dont see a
huge dramatic difference between the two. Were not hung
up at Fluor on the election.

McSorley added that Fluor was most concerned with the
permitting process for an individual facility. Do they
have any risks that are abnormal compared to other facilities and how do we help them
get through it? Thats what were more focused on
from a regulatory standpoint.

5.) Europe searches for alternative to
Russian gas supply. With production stagnant
in Western Europe, the Europeans are now very dependent on
Russian gas, said Oosterveer. And that gas is not cheap,
to say the least. I think Europeans are looking at
opportunities to get gas from anywhere in world for cheaper,
because they dont want to be held hostage by
the Russians every winter.

Oosterveer noted some developments on shale gas in Europe,
mostly in Poland, but not nearly as much as in the US. As a
result, he said its not necessarily going to solve
the need to try and get cheaper gas. The US has the
potential to export some less expensive gas to Europe, he added, but cautioned that
its at least five or six years away.

6.) Can China follow US lead on shale
development? Shale gas in the US is starting to become
more known and accepted, according to the Fluor
executives. Acceptance of fracking is increasing,
said Oosterveer. The industry is taking away public
concerns.

Like the US, other locations such as Latin America and China
have large shale reserves. However, questions remain on
prospects for development. I think the US has strong
infrastructure in place to export, said Oosterveer.
China has gas, but in a region where they dont have
a lot of water. They have to build that infrastructure.

Its hard to know what the landscape will look in
10 years, but I certainly subscribe to the notion that gas is
king for the foreseeable future, he said.

7.) Long-term fate of Australia LNG projects tied to North American
export decisions. At present, Fluor is working on
several LNG export projects in Australia, with most tied up in
long-term shipping commitments to China, Japan or Korea.
However, rising local costs are becoming an issue. It is
an expensive place to do work, said Oosterveer. It
is a challenge.

Going forward, the question of whether Australias LNG
industry will develop further may depend on decisions made in
North America, where costs are lower. Once the current facilities are built, they have
long-term agreements, said McSorley. Theyre
fine. But will there be more? Thatll be a
challenge.

8.) Crude prices likely to hover between $80/bbl and
$120/bbl for next two years. Anything below
$80/bbl I would say is highly unlikely, said Oosterveer.
I think weve found some stability.

9.) Demand outlook for China and India. The outlook for
Chinese economic growth has dropped slightly from the 8-9%/year
rates seen in recent years, Oosterveer noted. Our outlook
is a little more modest than a year ago, he said.
We would be pleased with 7%/year growth.

India, meanwhile, is a different story
altogether, he said. The potential is clearly
there, but the way to control and influence their economy is
just not like it is in China. The Chinese move fast, while India doesnt go that fast.
Its not to say we dont expect growth, but probably
wont be as sustained and as high as China over the next
10 to 15 years.

10.) Producers, contractors turn to formal
partnerships. Fluor has seen an increase in umbrella
agreements in recent years, culminating with a new downstream pact with Shell for Europe, the Middle East and Africa.
The company has a similar agreement in three regions with BASF,
a global services pact with Dow Chemical, and informal
relationships with Chevron and ExxonMobil.

When you look at demographics in the engineering
industry, particularly in the Western world, it can be
troublesome, said Oosterveer. You have people that
came into industry 30-plus years ago, soon to be retired.
Clients look at capital investment and say they have a problem,
unless we can form alliances and partnerships with people like
Fluor and join forces. Theyre looking for a presence in
all regions.

11.) Chemicals and upstream lead company
business. Fluor has four business lines, according to
the executives. Those are upstream, downstream, chemicals and
offshore.  Were pretty bullish about all four, but
in the short-term, were most optimistic on upstream,
including LNG and pipelines, and petrochemicals, driven largely by
the US, said Oosterveer.

He did note, however, that opportunities are starting to
pick up for downstream refiners. It seems like refiners
are starting to make money again, which is a good thing for
them, he said. We have been watching refining opportunities in a number
of places in the world, but they will be in different places -
like China, Argentina and Colombia. We still see opportunities
for refineries, but in new locations.

12.) New joint ventures add to project capability. For
years, Fluor has had a successful and established venture in
Mexico named ICA Fluor Daniel, and it is seeking to expand that
concept to other markets. In recent months, the company has
launched joint ventures in the Philippines and Brazil. It brings you instant
relationships and a localized presence, Oosterveer
said.

Over the next year, the company expects to add to its
workforce and potentially to its regionalized services.
Its very possible that we might have new capability
somewhere else in the world, he said.

For more details on Fluor, check out their company website
by clicking here.

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As a Fluor fan I enjoyed very much the realistic statement that made by Mr. Peter Oosterveer related to the future of Canada's LNG. Apart from the statement, I would like to point out that Canada's future LNG export owes a tribute to Mr. George Mitchell as well who made fracking breakthrough possible!